Trend Watch: $3 Billion Dollar Donuts

Market Updates

Beyond inflation fears, market crashes, and rates anxiety, one of the more prominent and consistent themes of the last two years has been a white hot IPO market.

We skeptically wrote some-time ago about Oatly’s IPO – a company which, you guessed it, sells oat milk. At the time we pointed out that the company was trading at around 27x sales, a pretty rich valuation by historical standards.

Now we have $3 billion donuts. Krispy Kreme, a company which sells donuts and struggles to turn a profit, last traded at $19.12 per share – giving it a market capitalisation of over $3 billion. Investors can now dunk their donuts in oaty water!

The market seemed to like, but not love the IPO. The stock popped during its first session (as is customary), closing up 23% last Thursday. It then proceeded to crash on Friday, with Krispy shedding 8.95% during the session. So, not the best follow-up to an otherwise good IPO.

The stock appropriately trades under the ticker DNUT.

Like Oatly, Krispy Kreme has exhibited good top-line growth in recent times. Over the last five-years revenue has gone from $556 million to $1.12 billion; while global access points for the chain’s delicious donuts has snowballed from 5,720 to 8,725.

Krispy also has maintained another trend gripping many hot-topic companies: not making money. Between FY18 and FY20 the company cumulatively lost about $107 million. In 2020 the company reported a widened net loss of $60.9 million — which according to management was driven by Covid and changes to receivables and inventory balances.

At least the company reported adjusted earnings (EBITDA) of $152.8 million last year.

The IPO market is a good example of where investors can get caught up in the emotion and make the mistake of not taking profit when prices go overboard. At Jaaims, our automated trading takes the emotion out of investment and updates recommendations every 15 minutes so you have the best chance to take profit before it’s too late.

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